amending applications

In view of the rapid, changing circumstances for MMJ businesses, the Department of Revenue is permitting applicants to amend their applications in the following situations:

Replacing a cultivation location with a new cultivation location (filing an amended appendix A) to the original application. I suspect that another OPC fee must be tendered along with the new Appendix A;
Adding/deleting managers, members, shareholders. New keyperson applications must also be tendered;
Transferring or selling the business assets (internal changes to an LLC or corporation, including transferring all stock/ownership of that entity); or
Increasing or decreasing the size of the proposed premises.

This list is not exhaustive and amendment may (or may not) be permitted in other situations.

Next, you must first seek local approval for any of the above-changes to your business. Also, you may only amend the application if:

1) You were operating an established, locally approved business on July 1, 2010, (or you had an application on file by July 1, 2010, which was subsequently approved), and;

2) You filed the required applications and fees with the Department of Revenue on or before August 1, 2010; and

3) On or before September 1, 2010, you certified that you were growing at least 70% of the medical marijuana necessary for your operation.

Mr. Cook advises that continued operation of a medical marijuana business or without meeting all three of these conditions is in violation of 12-43.3-901(1)(c) and 12-43.3-901(1)(d) C.R.S. This means that if you were late with your 9/1/10 certification, you are no longer permitted to continue to operate while your application is pending and must submit an entirely new application.

MMC and the “grow your own” requirement

Although I have previously discussed this issue, I need to address the concept of a MMC growing its own medicine. Here are the basic rules:

1. The MMC must grow up to 70% of its own MMJ.
2. The MMC can only purchase up to 30% of the MMJ from another, licensed MMC.
3. The MMC cannot buy MMJ from a caregiver or patient. Simply put, there is nothing legal a caregiver or patient can do with “excess” MMJ.
4. The effective date for the MMC to grow its own MMJ is 7/1/10. The 9/1/10 certification date is merely the date you tell the state that you are and have been growing your own MMJ.
5. You cannot contract with a grower to produce MMJ – you must grow your own.

Next, what is 70%? This is one of the more cryptic answers in this area of law. First, you must look to CRS 12-43.3-901, the unlawful acts section. At Sec. (e), it states that it is unlawful (i.e., illegal) for the MMC to possess more than 2 ounces and grow more than 6 plants for each patient that assigns the MMC as their “primary center.” Accordingly, the total amount of MMJ a MMC can possess is 2 ounces multiplied by the number of patients who have designated the MMC as their primary center. Using simple math, a MMC with 50 patients who have assigned the MMC as the primary center can possess no more than 100 ounces of MMJ. A MMC with 100 patients can possess 200 ounces and so on. Accordingly, a MMC with 50 patients must produce 70% of 100 ounces, which is 70 ounces. Again, the MMC can possess up to 100 ounces and no more. The practical result is that, in most cases, the production of the grow far outstrips the legal possession of MMJ by the MMC. Also, since you can only sell 30% of the total inventory to another MMC, in the 50 patient example, you can only sell 30 ounces to another MMC. Understand that the MMC is likely to produce “excess” MMJ, but cannot legally sell it. The key is to acquire more patients who assign the MMC as their primary center until your retail and cultivation capacity are equal. Otherwise, unlawful and illegal activities will have dire consequences.

Employees: felons, under 21, and out of state residents

As most of you know, the state prohibits people under 21, drug sale related felons and out of state residents from owning MMCs. The state also requires employees to “pass a criminal background check.” The question arises – does the drug felon, under 21 and out of state resident standards for owners apply equally to non-owner employees? At this point, the answer is yes. First, CRS 12-43.3.-101 et seq. prohibits employees under the age of 21 working in any capacity. Second, in speaking with Mr. Matt Cook, he advised that the “no drug sale felony” rule will be applied equally to non-owner employees. While the standard “pass a criminal background check” is vague, Mr. Cook believes (at least for the moment) that the felony issues are the same for owners and employees. Finally, Mr. Cook also states that the out-of-state resident, i.e., two years, applies equally to non-owner employees. Again, CRS 12-43.3-101 et seq. only states that employees must be state residents, Mr. Cook believes the two year standard applies. Perhaps several dozen letters might change his mind?

7/1/10 or 7/1/11? Which is it?

Confusion continues to guide the MMJ industry. Many of you have attended presentations by Mr. Matt Cook, the head of the state’s MMJ business regulation division. At these presentations, Mr. Cook repeatedly states that the bill goes into effect on 7/1/11 and that local regulations apply until then. I have spoken with many MMJ business people who take this information as the gospel truth and intend to continue with their businesses in their current form until 7/1/11. Many such businesses are “grow only” or “retail only” operations that have been locally approved (or not). Many are owned by people who have not resided in the state for two years, have a felony drug conviction or a felony conviction less than five years old or all three. In my discussions and correspondence with Mr. Cook (see prior blogs), it appears that continued operation of a MMJ business without strict compliance with HB1284 until 7/1/11 could be a serious problem.

Let’s examine the idea that you have until 7/1/11 to comply with HB1284. If the bill does not take effect until 7/1/11, is there any requirement to apply to the state by 8/1/10? Can you refuse to pay the $7500-$18,000 application fee until July 2011? When you list your optional grow premises, can you tell the state that you plan to get around to it before July 2011? When you list a drug felon or out-of-state resident as an owner or employee on your application, will you be able to address this issue sometime before 7/1/11. Finally, when you certify, under penalty of perjury, on 9/1/10 that you are growing 70% of your own MMJ, can you tell the state that you are planning on doing this, but currently are buying all of the MMJ from various growers?

The point of this exercise is to point out that compliance with HB1284 appears to be immediate. If it were otherwise, none of the provision of HB1284 would apply, including the 8/1/10 application, the license/application fee, the 9/1/10 certification, etc.

Based on the information we received from Mr. Cook and our reading of HB1284, we suggest immediate compliance with HB1284. If you follow this advice, the worst that can happen is that you ran an HB1284 compliant business for one year longer than necessary. However, if you defer your compliance until July1, 2011, you may find that your application is denied or, worse, that you may face criminal prosecution for operating a business without the benefit of HB1284 protection. In our view, it is better to be safe than sorry.

Post 7/1/10, the hangover from Black Thursday

Well, it was one hell of a tough road getting from the enactment of HB1284 through “Black Thursday.” All of you who hustled to get their businesses in order are amazing, resourceful, ingenious people and I am proud to represent you.

Now that it is 7/2, I want to make clear the following points:

1. You must be growing and selling only your own MMJ. The 9/1/10 certification does not act as an extension of the deadline for this requirement. Late last night I received clarification from Mr. Matt Cook that the effective date for growing and selling your own MMJ is 7/1/10. Do not jeopardize your hard work by purchasing MMJ from any one other than another established MMC, which has local approval for both its grow and retail operations. Don’t take any one’s word for their own legality – do your own due diligence.
2. Do not continue employing any people with drug felonies, concerning criminal histories (lots of misdemeanors, less-than felony drug convictions, etc.), people with a felony within five years of completing the sentence or anyone who has not been a Colorado resident for two years prior to 7/1/10 (see, prior blogs).
3. Do not operate your business at all unless you are locally approved and/or have applied for local approval for both the grow and retail aspects of your business. If you are a MIP, you can only continue operating if you have local approval/applied for local approval. If your MIP does not grow its own MMJ or you do not have local approval/applied for local approval for growing your own MMJ, you must have a written contract for purchase of MMJ with an established MMC. Please note that the MMC must be locally approved/applied for local approval for both the grow and retail aspects of its business in order to be able to sell 30% of its MMJ to your business. You may contract with up to 5 such businesses.
4. After 7/1/10, the MMC can only possess 2 ounces and grow 6 plants for the number of patients who have assigned the MMC as their “primary center.” As stated in previous blogs, you must convert all patients who have assigned any of the persons associated with your business to be their primary caregiver over to the MMC as their primary center. Use the state’s Change of Primary Caregiver form (there is not MMC primary center assignment form yet available) and make sure to properly complete, notarize and mail to the Department of Health and Department of Revenue, attn. Mr. Matt Cook, certified mail/return receipt requested. Remember – if you have zero patients who have assigned the MMC as their primary center, you may possess zero ounces of MMJ and may cultivate zero plants.
5. You should download the newly minted Dept. of Health patient application for use in acquiring new patients or use the Change of Primary Caregiver forms to assign current patients at the time of sale of MMJ from your MMC. You do not need to continue using any “temporary caregiver” forms (which were never legal anyway, see prior blogs). The forms may be downloaded from: http://www.cdphe.state.co.us/hs/medicalmarijuana/forms.html.
6. Begin preparing for the 8/1/10 Department of Revenue MMC/MIP application and save a substantial amount of money for the as-yet undisclosed application and license fees.
7. Please keep careful and accurate records regarding both your cultivation and sale of MMJ. Remember, the state’s microscope for your business will be applied beginning on 7/1/10!
8. For all of the primary caregivers – you must only have five patients, must provide other caregiving services (see prior blogs) and charge only the cost of producing the MMJ. You must notify the Department of Revenue who the five patients are that you intend to continue as their primary caregiver and give notice that you are no longer willing to act as the primary caregiver for the remaining patients. List all of the patients accordingly. Send the letter certified mail, return receipt requested.

Stay legal and stay safe. Please contact us with any questions

The course of MMJ business over the last year

Over the last year, we have seen an explosion in the MMJ business. At first, it was a few brave souls who simply undertook to provide medicine to a few patients without regard to profit or large scale operations. However, once the Obama adminstration announced that MMJ would not be a federal law enforcement priority, a great many people began exploring the MMJ business. Unfortunately, most of the entrepeneurs were advised, not by my office, that the MMJ business was a “grey area” and that you could do virtually anything you want as long as the MMJ is sold to patients. This was not the case and there was little or no legal protection for these businesses. As a result, the primary business model was acquiring a few patients to justify a commercial grow operation primarily in residences or in places unknown to local governments. The MMJ was then sold wholesale to dispensaries. Selective prosecution by law enforcement gave these growers and dispensaries a feeling of relative safety in their MMJ business activities.

Quickly, the MMJ business was booming and Westword magazine capitalized by permitting large scale advertising of this fledling industry. A few business were blatant in catering to “recreational patients” and adopted names like “Dr. Reefer.” The Denver Post then got into the act by taking an active role in criticizing the MMJ industry, including by referring to dispensaries as “pot shops” and publishing photographs of young people smoking marijuana. This created a public perception of MMJ as a front for recreational drug use. The legislature quickly responded with threats to eliminate the MMJ industry with the help of law enforcement.

In the following months, many attempts to create regulations for the MMJ industry were attempted and a rash of local moratoriums on MMJ businesses were enacted. A long and arduous process soon followed. From the outset, the legislature made clear that responsible and tightly regulated businesses would be the only survivors.

In the spring, various drafts of the proposed regulations were completed and it was clear that commercial growing and wholesale sales of MMJ would be prohibited. However, the growers were advised, again not by my office, that the regulations would not pass and that business as usual would be fine. This was not the case.

In May, HB1284 was completed and required a single business, the Medical Marijuana Center, was created. The MMC was required to grow and sell all of its own medicine and the commercial grower was legally eliminated. This wreaked havoc in the MMJ business community, as the grower businesses far out numbered the retail businesses. Felons and out of state residents were also eliminated creating further havoc in the industry.

Now comes “black thursday,” July 1, which is the effective date of HB1284. All businesses must be locally approved for both the grow and retail aspects of the MMC in order to continue operating after July 1. “Shotgun weddings” of growers and dispensaries are occurring in a matter of days or hours as people struggle to comply with the July 1 deadline. In many cases, these business marriages are doomed to fail. I predict law enforcement will ramp up its efforts to squash out non-compliant businesses and less than half of the existing MMJ businesses will survive. The final chapter of this story will be written over the next several months. Let us hope that the patients are not the ones who suffer along with the fate of the businesses that support them.

7/1/10 “Black Thursday”

Try as I might, I cannot possibly get to all of you before Thursday (I have tried!). Accordingly, I am writing this blog in an effort to address various issues that appear common to most MMJ business people.

1. 7/1/10 is the effective date for all MMJ businesses going forward. I understand that Mr. Matt Cook has told some of you that you have until 7/1/11 to comply. This is not the case. I have spoken with Mr. Cook and corresponded with him on several occassions. In his correspondence he makes clear that your MMC and/or MIP application will be evaluated using the 7/1/10 date. For those of you seeking to add a retail or add a grow after 7/1/10, Mr. Cook advises that both aspects of the MMC must be locally approved on or before 7/1/10.
2. There is no one year state moratorium. However, there is a defacto moratorium in that you cannot operate after 7/1/10 unless you were “established”/locally approved for both the grow and retail location(s) before 7/1/10. Otherwise, you cannot operate until both local and state approval are obtained.
3. Hash is going to be considered an “infused product.” The distinction provided by Mr. Cook is that green stuff in a bag is for MMCs, everything else is for MIPs.
4. There can be no deliveries except in the narrow circumstances provided in HB1284.
5. One grow can supply a MMC with multiple locations and common ownership.
6. One grow cannot supply MMJ to mulitiple MMCs not wholly and commonly owned by the same people. NO INDEPENDENT CONTRACTOR GROWS NO MATTER WHAT ANYONE IS TELLING YOU!!!
7. The residency, “no felony w/i five years of completion of sentence” and “no felony drug convictions ever” standards apply for owners, employees and managers of the MMC. The criminal background issues apply equally to investors.
8. The 70/30 rule applies on 7/1/10 and the certification is due 9/1/10. Again, in evaluating your application and 70/30 certification, the state will look back to 7/1/10.
9. MIPs must be locally approved by 7/1/10 to be considered established under HB1284 even if there is no such licensing procedure locally available.
10. The MIP may, but is not required to, grow its own MMJ using a locally approved OPC or may contract, in writing, with up to 5 MMCs to purchase the MMJ for use in making the products. The MIP MMJ cannot be resold to any other business or person, but the MIP can sell its products to any MMC.

I know how hard it is out there. Better to be on the sideline and do it right, then be further down the road doing it wrong. Remember, doing it wrong can result in delay, denial, permanent bar from future MMJ business or removal of any protection from criminal prosecution.

Stay legal, stay safe.

MMC and patient assignment – a follow up to the 70/30 rule

Further to my previous post, a MMC’s inventory is measured by the number of patients that assign the MMC as their “primary center” times two ounces per patient (I am not dealing with the “edibles”/medical necessity issues here) and can only grow 6 plants for each assigned patient. The question is how do we do this? The answer is not simple and has not yet been considered by the Dept. of Revenue or Dept. of Health. As with most MMJ issues, we must solve the problem ourselves and wait for the state to catch up. As with all MMC issues, prior to 7/1/10 is the date to accomplish this.

Accordingly, I suggest that the primary caregivers associated with the MMC have their patients assign the MMC as their “primary center.” Since their is no form or procedure for this, I suggest using the Change of Primary Caregiver form issued by the Dept. of Health. Instead of inserting a person’s name as the PC, I suggest inserting the MMC’s name, address, etc. Otherwise, fill out the form as required by the Dept. of Health and have the document notarized and mailed to the Dept. of Health, certified mail, return receipt requested. The state may reject the form, but at least you have timely proof of conversion from primary caregiver to primary center. Keep the proof handy, including the original patient cards, change of caregiver forms and return receipts as evidence of an unbroken chain of legal caregiving/care centering.

Finally, there are many patients you cannot locate. I suggest sending the Dept. of Health a letter detailing the patients that have changed from you as a PC to the MMC. Next, list each of the patients you were unable to locate and advise the state that “I am listed as the primary caregiver for the following patients listed below. I have tried to contact these patients, but am unable to do so. Accordingly, let this letter serve as notice that I am unwilling to act as the primary caregiver for the patients listed below effective immediately. If you have any means of contacting these patients, please advise them that I am no longer their primary caregiver.” Again, notarize and send this letter to the Dept. of Health AND Dept. of Revenue, attn. Mr. Matt Cook, certified mail/return receipt requested.

Someday the state will create its own procedure and form for designating a primary center and you get to do this all over again!

Keep all the records handy, organized and a copy at the MMC and any optional grow premises.

Medical Marijuana Center and 70/30 rule

HB1284 requires that a Medical Marijuana Center cultivate its own medicine. The concept is that one business, the MMC, will operate both a retail and cultivation operation. Many people believe that a grower can merely contract with a MMC and continue wholesale sales of MMJ to MMCs. This is not the case.

Only the MMC can apply for the optional grow premises license and only MMCs can sell MMJ, including to each other.

The state requires that MMCs established (a lease, payment of local and state sales tax and/or applied for local approval at both locations must certify that the MMC is growing at least 70% of its own medicine by 9/1/10.

The MMC can sell or purchase 30% of the medicine from another MMC (not a grower). The concept is that lag time between harvest and acquisition of unique strains can be facilitated between MMCs.

The question arises as to how the MMC will account for 70% cultivation of its own medicine. Here it is: the MMC can only possess 2 ounces and cultivate 6 plants for each patient that assigns the center as their “primary center.” Be reminded that the MMC can work with any patient (no more “temporary” caregiving) and a patient can go to any MMC. As such, “primary center” means favorite or main center and is not exclusive. This means that the 100% inventory is based on the number of patients who assigned the MMC as their primary center, multiplied by 2 ounces.

Be wary. The state may not be very good at this at first, but it will not be long before it is very experienced with MMJ cultivation. Do not take chances and keep good records in the event of a dispute. You do not want to lose your investment over a few ounces!

There is no 1 year state moratorium

There is a myth going around that there is a one-year, state moratorium on new MMJ businesses. This is incorrect.

It is true that the HB1284 summary contained such a statement, but the summary is from a prior version of the draft regulation and is a summary intended to give voting legislatures a summary of the bill. However, the bill itself, which is the actual regulation, does not contain any state moratorium language.

Accordingly, any state resident can apply to the state once local approval of their proposed MMJ business is obtained. Remember, the MMJ business must be locally approved for both cultivation and retail sale of MMJ. This usually requires approval of two separate locations. Once local approval is obtained, you may apply to the state for the Medical Marijuana Center/Optional Cultivation license(s) or Infused product manufacturers license. Be reminded that you may not engage in cultivation or sale of MMJ until both state and local approval are received.